You can send out all the direct marketing pieces you want, but if you aren’t taking advantage of the math that goes with it, you are wasting your time. You’ll never know whether the mailer or email ad does indeed incite some action from your consumers.

Following are the basic formulas you need to determine whether your direct marketing campaign is contributing to your bottom line.

Raw Cost-per-Response =   Cost-per-package /  Response Rate

• If you have a package that costs $.489 per unit and a response rate of 2.78%, what’s the cost-per-response?
• $.489 / .0278 = $17.59

Loaded Cost-per-Response =   (Cost-per-package  /  Response Rate) + Fulfillment + Telemarketing

• Using the above example, let’s assume the fulfillment cost is $3.75 and telemarketing averages $4.5 per call.
• $17.59 + $3.75 + $4.50 = $25.84

Cost-per-Sale =   Cost-per-Lead  /  Closing Rate

• If this was a two step sale, $25.84 would be your loaded cost-per-lead (from above). Say we have a closing rate of 22%.
• $25.84  /  .22 = $117.45.

Response Rate =   Cost-per-Package /   Cost-per-Response

• There are times when you need to know what response rate you need to hit break-even.
• Let’s assume that a package costs $.654 each and the raw cost-per-response target was $25.
• $.654  /  $25.00  =  2.62%

Package Cost =   Cost-per-Response x  Response Rate

• Let’s assume we anticipate that a specific offer will generate a response rate of 1.5% to 2.0% and that the target cost-per-response is $48.00. Using the worst case scenario (1.5%), how much can we afford to spend on the package in the mail?
• $48.00  x  .015  =  $.720 each

Monday, October 19th, 2009, 10:16 am   |   Direct Marketing  |  RSS feed |  Respond  |  Trackback